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ARC MGMT 374 Week 12 Presentation
- 1. Chapter 9:
Managing and Controlling
Ethics Programs
Part Four:
Implementing Business Ethics in
a Global Economy
© 2013 Cengage Learning. All Rights Reserved. 1
- 2. Implementing Ethics Programs
Five factors can impact success of ethics
programs
1. The content of the code of ethics
2. The frequency of communication regarding the
ethics program
3. The quality of communication
4. Senior management’s ability to incorporate ethics
into the organization
5. Local management’s ability to do the same
Organizations must focus on implementation
and planning an ethics program
• Should be part of strategic planning and management
activities
© 2013 Cengage Learning. All Rights Reserved. 2
- 3. Process Controls for Ethics
Programs
Proper selection of employees
Ethics training
Structural and communication systems
Ethics assistance line
Help desk
Management’s commitment to the program
Comparing standards against actual behavior
Ethics audit
© 2013 Cengage Learning. All Rights Reserved. 3
- 4. The Ethics Audit
A systematic evaluation of an organization’s ethics
program and performance to determine whether it
is effective
Regular, complete, and documented measurements of
compliance with policies and procedures
Can be a precursor to establishing an ethics program
Should be the most important part of an ethics
program
Primary purpose is to identify risks and problems in
activities and plan steps to adjust/correct/
eliminate concerns
• Recent legislation encourages greater ethics auditing
© 2013 Cengage Learning. All Rights Reserved. 4
- 5. The Social Audit
The process of accessing and reporting a
business’s performance in fulfilling its
economic, legal, ethical, and philanthropic
responsibilities expected by stakeholders
Broader in scope than an ethics audit
An ethics audit might be a component
© 2013 Cengage Learning. All Rights Reserved. 5
- 6. Benefits of an Ethics Audit
Detect misconduct before it becomes a major
problem
Identify potential ethical issues and improve
legal compliance
Improve organizational performance
Improve relationships with stakeholders who
demand greater transparency
Sets goals against which to measure actual
performance
© 2013 Cengage Learning. All Rights Reserved. 6
- 8. Ethical Crisis Management
Plans to respond to and recover from
disasters that can disrupt
operations, destroy organizational
reputation, and erode shareholder
confidence
Involves
Contingency planning
Assessing organizational risks
Planning for potential occurrences
Providing tools to respond
© 2013 Cengage Learning. All Rights Reserved. 8
- 9. Stages of an Ethical Disaster
Ethical misconduct disasters progress in
stages
Ethical issue recognition
The decision to act unethically
Organization’s discovery of and response to the
act
Anticipation of and intervention can stave
off organizational disasters
• Formal mechanisms in place to detect risk
© 2013 Cengage Learning. All Rights Reserved. 9
- 11. Measuring Nonfinancial Ethical
Performance
Nonfinancial performance measures are crucial
to a firm’s health
Measure wholeness and soundness of a company
“Return on integrity”
Many organizations and regulatory frameworks
offer a means of capturing ethical performance
Structural
Behavioral
© 2013 Cengage Learning. All Rights Reserved. 11
- 12. Measuring Nonfinancial Ethical
Performance
Six Sigma
Balanced Scorecard
Triple Bottom Line
Global Reporting Initiative
AccountAbility AA1000 framework
Open Compliance Ethics Group
© 2013 Cengage Learning. All Rights Reserved. 12
- 13. Roles and Functions of
Risk, Management, and Compliance
© 2013 Cengage Learning. All Rights Reserved. 13
- 14. Risks in Ethics Auditing
May uncover ethical problems a company does
not wish to disclose
May reveal a problem that cannot be remedied
Stakeholders may be dissatisfied with the
information
Conducting ethics audits requires financial and
record keeping resources
No guarantee that auditing is the solution
Lack of standardization in auditing
© 2013 Cengage Learning. All Rights Reserved. 14
- 15. The Auditing Process
Audits should be unique to each company
The following steps provide a general
framework
Secure management and board commitment
Establish an ethics audit committee
Define the scope of the audit
Review organizational mission, goals, and values
Collect and analyze relevant information
Verify the results through an outside agent
Report the findings
© 2013 Cengage Learning. All Rights Reserved. 15
- 16. Secure Commitment of Top
Management and the Board
The first step in the auditing process
Sarbanes-Oxley requires that boards of
directors provide oversight
The board may initiate audits
Managers may request an ethics audit to
improve confidence in a firm’s reporting
processes
© 2013 Cengage Learning. All Rights Reserved. 16
- 18. Establish an Ethics Oversight
Committee
The second step in the auditing process
Boards of directors financial audit committee
should oversee the audit
Managers or ethics officers conduct it in most firms
Internal and external parties should be
involved
External auditors should not have other consulting
or conflict-of-interest relationships with top
managers or board members
© 2013 Cengage Learning. All Rights Reserved. 18
- 19. Define the Scope of the Audit
The ethics audit committee should establish
the scope of the audit and monitor its
progress
Scope is determined by the type of
business, risks faced, and the opportunities
to manage ethics
© 2013 Cengage Learning. All Rights Reserved. 19
- 20. Review Organizational
Mission, Values, Goals, and Policies
An ethics audit should
Include a review of the current mission
statement and strategic objectives
Examine all formal and informal documents
that make commitments with regard to ethical,
legal, or social responsibility
A firm should define its ethical priorities at
this time
© 2013 Cengage Learning. All Rights Reserved. 20
- 21. Collect and Analyze Information
Identify tools for measuring progress in improving
employees’ ethical decisions
Collect relevant subject matter
Internal and external documents
Determine a baseline level of compliance
Determine all commitments
Stakeholders yield insights
Integrating stakeholder feedback is crucial in an audit
Audits should compare organizational
performance to other comparable organizations
© 2013 Cengage Learning. All Rights Reserved. 21
- 22. Correlation Between Retaliation and Ethical
Culture
Source: Retaliation: The Cost to Your Company and Its Employees, (Arlington, VA: Ethics Resource Center, 2010), p. 10.
© 2013 Cengage Learning. All Rights Reserved. 22
- 23. Verify the Results
Have an independent party verify the results of
the analysis
Companies often have results independently
audited
Verification is an assessment of the quality,
accuracy, and completeness of a company’s
social report
Should involve standard procedures to control
reliability and validity of information
© 2013 Cengage Learning. All Rights Reserved. 23
- 24. Report the Findings
The final step in the auditing process
Spells out the purpose and scope of the
audit, methods used, role of the auditor, and
auditing and reporting guidelines
May be disseminated internally or externally
Ethics audits are similar to financial audits, but
forms are different
• Unqualified opinion
• Qualified opinion
• Adverse opinion
• Disclaimer of opinion
© 2013 Cengage Learning. All Rights Reserved. 24
- 25. Strategic Importance of Ethics
Auditing
Should be conducted regularly
Provides a benchmark of overall effectiveness
of ethics initiatives
Can be important in asset allocation and program
development
Can demonstrate the positive impact of ethical
conduct and social responsibility initiatives on
the firm’s bottom line
© 2013 Cengage Learning. All Rights Reserved. 25